Key Takeaways
- Analysts estimate EPS of $1.36 vs. $1.31 in Q2 FY 2019.
- Payments volume is expected to rise by 7% YOY.
- COVID-19 will slow growth rate in transactions, revenue, earnings.
Financial services giant Visa Inc. (V) has posted solid gains in quarterly revenue and adjusted EPS each quarter for the past three years. Much of this growth is thanks to the company's increase in quarterly payments volume, which has steadily climbed to $2.4 trillion. Investors will focus on this key metric, payments volume, for a sign of how Visa is navigating the global coronavirus fallout when it releases Q2 FY 2020 earnings. While Visa is yet to announce a formal date, analysts estimate it will report on April 22 after the market close. For the quarter, analysts predict the company will report a sharp slowdown in quarterly revenue and EPS growth YOY, the slowest in several years, as gains in payments volume remain stable.
The company's history of solid performance, especially when it comes to payments volume, may be why Visa has outperformed the broader market in the past 12 months, with a total return of 9.5% compared with -2.0% for the S&P 500.
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In recent fiscal Q2 periods, Visa has reported growth in both EPS and revenue. Revenue grew 23.5% YOY in Q2 FY 2017, then slowed to 13.3% growth in Q2 FY 2018 and to 8.3% growth in Q2 FY 2019. Analysts predict revenue will climb by 6.1% to $5.8 billion in Q2 FY 2020, the smallest YOY quarterly revenue growth in several years. Last quarter, Visa's quarterly revenue grew by 10.0% YOY to $6.1 billion.
Adjusted EPS has seen a similar pattern in recent fiscal Q2 periods, growing each year, but by a smaller and smaller percentage. Quarterly adjusted EPS grew by 20.7% YOY in Q2 2017 then reached a high point in YOY growth in Q2 FY 2018, when it climbed by 29.8%. YOY growth was smaller in Q2 FY 2019, when EPS climbed by 17.2%. Now, analysts predict the smallest YOY gains to adjusted EPS of any quarter in the past three years, as consensus estimates call for a 4.2% gain in Q2 FY 2020.
| V Key Metrics | |||
|---|---|---|---|
| Estimate for Q2 2020 (FY) | Actual for Q2 2019 (FY) | Actual for Q2 2018 (FY) | |
| Adjusted Earnings Per Share | $1.36 | $1.31 | $1.11 |
| Revenue (billions) | $5.8 | $5.5 | $5.1 |
| Payments Volume Growth | 7% | 3% | 16% |
Source: Visible Alpha
As COVID-19 disrupts global consumer and business markets, the key metric Visa investors may focus on is the YOY increase in payments volume, which references the total value of payments taking place across Visa's financial platforms. Investors look to this gauge of Visa's performance because it reflects the total volume of business that the company can monetize either by fees or by interest.
Visa's quarterly payments volume has increased YOY every quarter for the past three years, a seeming sign of stability for investors. Despite that, the quarterly YOY growth rate of payments has generally slowed drastically during the past three years. That growth rate, for example has decelerated from 39% in Q3 2017 to 14% in Q3 2019 to 5% in Q3 2019. This means the Q3 2019 growth rate was about 8 times smaller than 2 years earlier in Q3 2017. This slowing growth is reflected in the company's decelerating profit and revenue growth in the past 3 years.
This also is reflected in the most recent quarters. In the latest Q1 2020, the company reported YOY increase in payments volume of 8%, while analysts predict growth of 7% in Q2 FY 2020. The big question is to what extent the global economic crisis will further dampen Visa's gains.
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